<PAGE>
EXHIBIT 10.31
Page 1
TAX SHARING AGREEMENT
by and
between
WESTERN ATLAS INC.
and
UNOVA, INC.
dated as of October 31, 1997
<PAGE>
TAX SHARING AGREEMENT
TABLE OF CONTENTS
<TABLE>
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ARTICLE I - DEFINITIONS
1997 Stub Period
4
Accounting Firm.
4
Acquisition.
4
Calendar Year.
4
Carryback Item
4
Code
4
Distribution Agreement
4
Distribution Date.
4
Filed UNOVA Group
Separate Tax Liability
4
Filed UNOVA Group
Separate Joint Tax Liability
5
Final Determination.
5
IRS.
5
Joint Return
5
Litton Agreement
5
Norand Tax
5
Notification Date.
5
Other Tax Return
5
Pre-Distribution Year.
5
Restructuring Taxes.
5
Tax.
6
Taxes.
6
Tax Benefit.
6
Tax Detriment.
6
Tax Item
6
Tax Reserves
6
Tax Return
6
UNOVA Business
6
UNOVA Distribution
7
UNOVA Group.
7
UNOVA Group Separate
Joint Tax Liability
7
UNOVA Group Separate
Taxable Income.
7
UNOVA Group Separate
Tax Liability
7
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UNOVA Indemnity Issue.
7
UNOVA Issue.
7
UNOVA Notice
7
Unrelated Person
7
Western Atlas Adjustment
7
Western Atlas Business
7
Western Atlas
Consolidated Group
8
Western Atlas Group.
8
Western Atlas Issue.
8
Western Atlas Revision
8
ARTICLE II - FILING OF TAX RETURNS
Section 2.1 - Manner of Filing
8
Section 2.2 - Pre-Distribution Tax Returns
9
Section 2.3 - Post-Distribution Tax
Returns.
9
ARTICLE III - PAYMENT OF TAXES
Section 3.1 - Unfiled Federal Taxes for
Pre-Distribution Periods
9
Section 3.2 - Unfiled Joint Returns for
Pre-Distribution Periods
12
Section 3.3 - Change in Federal Returns and
Joint Returns.
14
Section 3.4 - Change in Other
Pre-Distribution Year State, Local or Other Return
16
Section 3.5 - Change in Pre-Distribution
Year Foreign Return
17
Section 3.6 - Restructuring Taxes.
17
Section 3.7 - Dual Consolidated Loss
Closing Agreement
18
Section 3.8 - Liability for Taxes with
Respect to Post-Distribution Periods.
19
Section 3.9 - Carrybacks
19
Section 3.10 - Statutes of Limitations
20
Section 3.11 - Earnings and Profits.
21
Section 3.12 - Liability for Norand Taxes.
21
Section 3.13 - Breach.
21
ARTICLE IV - INDEMNITY: COOPERATION AND
EXCHANGE OF INFORMATION
Section 4.1 - Indemnity.
21
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Section 4.2 - Cooperation and Exchange of
Information.
22
Section 4.3 - Reliance on Exchanged
Information.
23
ARTICLE V - MISCELLANEOUS
Section 5.1 - Reserves
24
Section 5.2 - Expenses
24
Section 5.3 - Payments
24
Section 5.4 - Entire Agreement; Termination
of Prior Agreements Other Than Litton Agreement.
24
Section 5.5 - Notices.
24
Section 5.6 - Application to Present and
Future Subsidiaries
25
Section 5.7 - Term
25
Section 5.8 - Titles and Headings.
25
Section 5.9 - Legal Enforceability
25
Section 5.10 - Further Assurances.
26
Section 5.11 - Parties in Interest
26
Section 5.12 - Setoff.
26
Section 5.13 - Change of Law
26
Section 5.14 - Governing Law and
Interpretation.
26
Section 5.15 - Resolution of Certain
Disputes.
26
Section 5.16 - Confidentiality
28
Section 5.17 - Limitation on Waivers
28
Section 5.18 - Counterparts.
28
Section 5.19 - Fair Meaning.
29
Section 5.20 - Construction.
29
Section 5.21 - Termination
29
</TABLE>
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT (the
"Agreement") is being entered into this
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31st day of October, 1997, in connection
with a Distribution and Indemnity
Agreement (the "Distribution Agreement")
dated as of October 31, 1997 by and
between WESTERN ATLAS Inc., a Delaware
corporation ("WESTERN ATLAS"), and UNOVA,
Inc., a Delaware corporation ("UNOVA"),
pursuant to which, among other things,
WESTERN ATLAS will distribute to holders of
its common stock all the issued and
outstanding common stock of UNOVA (the
"UNOVA Distribution"). Western Atlas, on
behalf of itself and its present and future
subsidiaries (the "Western Atlas
Group"), and UNOVA on behalf of itself and
its present and future subsidiaries
(the "UNOVA Group"), are entering into this
Agreement to provide for the
allocation between the Western Atlas Group
and the UNOVA Group of all
responsibilities, liabilities and benefits
relating to or affecting Taxes (as
hereinafter defined) paid or payable by
either of them for all taxable periods,
whether beginning before or after the
Distribution Date (as hereinafter defined)
and to provide for certain other
matters.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following
terms shall have the following meanings
(such meanings to be equally applicable to
both the singular and the plural
forms of the terms defined):
"1997 Stub Period" shall have the meaning
assigned to such term in Section
3.1(a) of this Agreement.
"Accounting Firm" shall have the meaning
assigned to such term in Section
3.1(b)(2)(B) of this Agreement.
"Acquisition" shall have the meaning
assigned to such term in Section 3.6(b) of
this Agreement.
"Calendar Year" means the 52-53 week year
ending on the Sunday nearest December
31.
"Carryback Item" shall have the meaning
assigned to such term in Section 3.8(b)
of this Agreement.
"Code" means the Internal Revenue Code of
1986, as amended, or any successor
statute, and shall include corresponding
provisions of any subsequently enacted
federal tax laws.
"Distribution Agreement" shall have the
meaning assigned to such term in the
preface to this Agreement.
"Distribution Date" means the date
determined by Western Atlas Board of
Directors as of which the UNOVA
Distribution shall be effected, which is
presently contemplated to be October 31,
1997.
"Filed UNOVA Group Separate Tax Liability"
means the amount determined
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pursuant to Section 3.1(b) for the 1997
Stub Period.
"Filed UNOVA Group Separate Joint Tax
Liability" means that amount determined
pursuant to Section 3.2(b) for the 1997
Stub Period.
"Final Determination" shall mean the final
resolution of liability for any tax
for a taxable period (i) by IRS Form 870 or
870-AD (or any successor forms
thereto), on the date of acceptance by or
on behalf of the IRS, or by a
comparable form under the laws of other
jurisdictions; except that a Form 870 or
870-AD or comparable form that reserves
(whether by its terms or by operation of
law) the right of the taxpayer to file
a claim for refund and/or the right of the
taxing authority to assert a further
deficiency shall not constitute a Final
Determination; (ii) by a decision,
judgment, decree, or other order by a court
of competent jurisdiction, which has
become final and unappealable; (iii) by a
closing agreement or accepted offer in
compromise under Section 7121 or 7122 of
the Code, or comparable agreements
under the laws of other jurisdictions; (iv)
by any allowance of a refund or
credit in respect of an overpayment of Tax,
but only after the expiration of all
periods during which such refund may be
recovered (including by way of offset)
by the Tax imposing jurisdiction; or (v) by
any other final disposition of
liability in respect of a Tax provided for
under applicable law, including by
reason of the expiration of the applicable
statute of limitations.
"IRS" means the Internal Revenue
Service.
"Joint Return" means a state income tax
return, including, but not limited to, a
unitary, combined or consolidated state
income tax return, that includes at
least one Western Atlas Business and at
least one UNOVA Business.
"Litton Agreement" shall have the meaning
assigned to such term in Section 5.4
of this Agreement.
"Norand Tax" shall have the meaning
assigned to such term in Section 3.11 of
this Agreement.
"Notification Date" shall have the meaning
assigned to such term in Section
3.1(b)(2)(B) of this Agreement.
"Other Tax Return" means any Tax Return
other than (1) a federal income tax
return, (2) a state or local tax return and
(3) a foreign tax return.
"Pre-Distribution Year" means any taxable
year beginning before the Distribution
Date during which any member of the UNOVA
Group was included in the Western
Atlas Consolidated Group.
"Restructuring Taxes" means any Taxes,
including related interest, penalties and
additions to Tax and reasonable attorneys'
fees, resulting from (1) the failure
of the UNOVA Distribution to qualify as
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a distribution described in Sections 355
and/or 368(a)(1)(D) of the Code or
corresponding provisions of state tax law
or (2) the application of Sections
355(e) of the Code to the UNOVA
Distribution.
"Tax" means any of the Taxes.
"Taxes" means all forms of taxation,
whenever created or imposed, and whether of
the United States or elsewhere, and whether
imposed by a local, municipal,
governmental, state, federation or other
body, and without limiting the
generality of the foregoing, shall include
income, sales, use, ad valorem, gross
receipts, value added, franchise, transfer,
recording, withholding, payroll,
employment, excise, occupation, premium and
property taxes, together with any
related interest, penalties and additions
to any such tax, or additional amounts
imposed by any taxing authority (domestic
or foreign) upon the UNOVA Group, the
Western Atlas Group or any of their
respective members or divisions or branches.
"Tax Benefit" means any item of loss,
deduction, credit or any other Tax Item
which decreases Taxes paid or payable,
other than Tax Items resulting from an
adjustment pursuant to Section 3.1(d) or
3.2(c).
"Tax Detriment" means any item of income,
gain, recapture of credit or any other
Tax Item which increases Taxes paid or
payable, including taxes paid or payable
to
Litton pursuant to the Litton Agreement,
other than Tax Items previously taken
into account pursuant to Section 3.1(d)
and/or 3.2(c).
"Tax Item" means any item of income, gain,
loss, deduction, credit, recapture of
credit or any other item which increases or
decreases Taxes paid or payable,
including an adjustment under Code Section
481 resulting from a change in
accounting method.
"Tax Reserves" shall have the meaning
assigned to such term in Section 5.1 of
this Agreement.
"Tax Return" means any return, filing,
questionnaire or other document required
to be filed, including requests for
extensions of time, filings made with
estimated tax payments, claims for refund
and amended returns that may be filed,
for any period with any taxing authority
(whether domestic or foreign) in
connection with any Tax or Taxes (whether
or not a payment is required to be
made with respect to such filing).
"UNOVA Business" means any present or
future subsidiary, division or business of
any member of the UNOVA Group which is not,
or is not contemplated by the
Distribution Agreement to be, part of the
Western Atlas Group immediately after
the UNOVA Distribution. UNOVA Business
shall include any subsidiary, division or
business listed on Schedule A hereto.
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"UNOVA Distribution" shall have the meaning
assigned to such term in the preface
to this Agreement.
"UNOVA Group" shall have the meaning
assigned to such term in the preface to
this Agreement.
"UNOVA Group Separate Joint Tax Liability"
shall have the meaning assigned to
such term in Section 3.2(b) of this
Agreement.
"UNOVA Group Separate Taxable Income"
means, with respect to Calendar Year 1996
or the 1997 Stub Period, the sum of (i) the
consolidated federal taxable income
of the UNOVA Group members that were
members of the Western Atlas Consolidated
Group at any time during Calendar Year 1996
or Calendar Year 1997, determined as
though such UNOVA Group members constituted
a separate consolidated group of
which UNOVA was the common parent and (ii)
the UNOVA Group's portion of the
federal taxable income of the FSC.
"UNOVA Group Separate Tax Liability" means,
with respect to Calendar Year 1996
or the 1997 Stub Period, the sum of (i) the
consolidated federal income tax
liability of UNOVA Group members that were
members of the Western Atlas
Consolidated Group at any time during such
year, determined as though such UNOVA
Group members constituted a separate
consolidated group of which UNOVA was the
common parent, reduced by the tax benefit
of any loss or credit that is limited
at the UNOVA level but utilized at the
Western Atlas Consolidated Group level
and increased by the tax benefit of any
loss or credit that is limited at the
Western Atlas Consolidated Group level but
utilized at the UNOVA level; and (ii)
the UNOVA Group's portion of the federal
income tax liability of the FSC.
"UNOVA Indemnity Issue" shall have the
meaning assigned to such term in Section
4.1(a) of this Agreement.
"UNOVA Issue" shall have the meaning
assigned to such term in Section 3.4(a) of
this Agreement.
"UNOVA Notice" shall have the meaning
assigned to such term in Section
3.1(b)(2)(B) of this Agreement.
"Unrelated Person" means any person (within
the meaning of Section 7701(a)(1) of
the Code) other than a party hereto or a
corporation that is a controlled
subsidiary (within the meaning of Section
368(c) of the Code) of such party
immediately prior to the Acquisition of
such party's stock or assets.
"Western Atlas Adjustment" shall have the
meaning assigned to such term in
Section 3.1(b)(2)(A) of this Agreement.
"Western Atlas Business" means any present
or future subsidiary, division or
business of any member of the Western Atlas
Group, other than a present or
future subsidiary, division or business of
any member
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of the UNOVA Group. Western Atlas Business
also shall include any former
subsidiary, division or business of Western
Atlas not listed on Schedule A
hereto.
"Western Atlas Consolidated Group" means
with respect to any taxable period, the
affiliated group of corporations of which
Western Atlas is the common parent
(within the meaning of Section 1504 of the
Code).
"Western Atlas Group" shall have the
meaning assigned to such term in the
preface to this Agreement.
"Western Atlas Issue" shall have the
meaning assigned to such term in Section
3.4(a) of this Agreement.
"Western Atlas Revision" shall have the
meaning ascribed to such term in Section
3.1(e) of this Agreement.
ARTICLE II
FILING OF TAX RETURNS
Section 2.1. MANNER OF FILING. All Tax
Returns filed after the Distribution Date
shall be prepared on a basis which is
consistent with any opinion of counsel
obtained by Western Atlas in connection
with the UNOVA Distribution and shall be
filed on a timely basis (including
extensions) by the party responsible for such
filing under this Agreement. In the absence
of a change in controlling law, all
Tax Returns filed after the date of this
Agreement shall be prepared on a basis
consistent with the elections, accounting
methods, conventions, and principles
of taxation used for the most recent
taxable periods for which Tax Returns
involving similar Tax Items have been
filed, except to the extent that an
inconsistent position would not result in a
Tax Detriment to the other party;
provided, however, that any deduction
attributable to the exercise after the
Distribution Date of a stock option (with
respect to either Western Atlas stock
or Litton Industries, Inc. Stock) under
section 83(h) of the Code or Treasury
Regulation section 1.83-6, or any deduction
attributable to the disqualifying
disposition of incentive stock option stock
(with respect to either Western
Atlas stock or Litton Industries, Inc.
stock) or the disqualifying disposition
of stock acquired through the Western Atlas
Inc. 1996 Employee Stock Purchase
Plan (with respect to either Western Atlas
stock or UNOVA stock) under Section
421(b) of the Code, shall be claimed on the
Tax Return of the UNOVA Group in the
case of an employee, independent
contractor, or director (other than a director
who is an employee of Western Atlas) of any
member of the UNOVA Group and on the
Tax Return of the Western Atlas Group in
the case of an employee, independent
contractor or director (other than a
director who is an employee of UNOVA) of
any member of the Western Atlas Group.
Subject to the provisions of this
Agreement, all decisions relating to the
preparation of Tax Returns shall be
made in the sole
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discretion of the party responsible under
this Agreement for such preparation.
Section 2.2. PRE-DISTRIBUTION TAX
RETURNS.
(a) Except as otherwise provided in this
Section 2.2, all Tax Returns required
to be filed for periods beginning before
the Distribution Date shall be filed by
UNOVA or the appropriate UNOVA
Business.
(b) State and local tax returns (other than
Joint Returns) and Other Tax Returns
for all taxable periods beginning before
the Distribution Date shall be filed by
the Western Atlas Business or UNOVA
Business, as the case may be, which had
responsibility for filing such return for
the last taxable period ending prior
to the Distribution Date.
(c) All foreign Tax Returns for taxable
periods beginning before the
Distribution Date shall be filed by the
legal entity which had responsibility
for filing such return for the last taxable
period ending prior to the
Distribution Date, regardless of whether
such entity was a member of the Western
Atlas Group or the UNOVA Group before or
after the Distribution Date.
(d) The United States consolidated federal
income Tax Return for the Western
Atlas Consolidated Group for the 1996
Calendar Year, if not filed before the
Distribution Date, shall be filed by UNOVA.
The United States consolidated
federal income Tax Return for the Western
Atlas Consolidated Group for the 1997
Calendar Year shall be filed by Western
Atlas. All Joint Returns for the 1996
Calendar Year, if not filed before the
Distribution Date, shall be filed by
Western Atlas, and all Joint Returns for
the 1997 Calendar Year shall be filed
by Western Atlas.
(e) IRS Form 8697, Interest Computation
Under the Look-Back Method for Completed
Long-Term Contracts, and any comparable
state forms, for the Western Atlas
Consolidated Group for the 1997 Calendar
Year shall be prepared by UNOVA and
filed by Western Atlas.
Section 2.3. POST-DISTRIBUTION TAX RETURNS.
All Tax Returns of the UNOVA Group
for periods beginning after the
Distribution Date shall be filed by UNOVA or the
appropriate UNOVA Business and all Tax
Returns of the Western Atlas Group for
periods beginning after the Distribution
Date shall be filed by Western Atlas or
the appropriate Western Atlas Business.
ARTICLE III
PAYMENT OF TAXES
Section 3.1. UNFILED FEDERAL TAXES FOR
PRE-DISTRIBUTION PERIODS. (a) On or about
October 15, 1997, Western Atlas shall pay
to or receive from, as appropriate,
the UNOVA Group a sum equal to the
difference between (i) the UNOVA Group
Separate Tax Liability for Calendar Year
1996, and (ii) an amount equal to all
payments previously made by the
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UNOVA Group or any member thereof. On or
about March 31, 1998, UNOVA shall
deliver to Western Atlas an estimate of the
UNOVA Group Separate Taxable Income
for the period beginning on December 30,
1996 and ending on the last day in
which the members of the UNOVA Group are
includible in the Western Atlas
Consolidated Group (the "1997 Stub
Period"). On or about April 30, 1998, UNOVA
shall pay to Western Atlas, or Western
Atlas shall pay to UNOVA, as appropriate,
a sum equal to the difference (if any)
between (i) Western Atlas's estimate of
the UNOVA Group Separate Tax Liability for
the 1997 Stub Period, and (ii) an
amount equal to all payments previously
made by the UNOVA Group or any member
thereof. Not later than one business day
before April 15, 1998, Western Atlas
shall deliver to UNOVA a schedule showing
its estimate of the UNOVA Group
Separate Tax Liability for the 1997 Stub
Period and the amount payable by UNOVA
to Western Atlas, or by Western Atlas to
UNOVA, as the case may be, pursuant to
this Section 3.1(a).
(b) UNOVA shall pay to Western Atlas, or
Western Atlas shall pay to UNOVA, as
appropriate, an amount reflecting the
difference (if any) between (i) the Filed
UNOVA Group Separate Tax Liability for the
1997 Stub Period and (ii) an amount
equal to all federal income tax payments
made by the UNOVA Group with respect to
such period. Such payment shall be made on
or before November 15, 1998. Amounts
due or refunds receivable from IRS Form
8697 and any comparable state forms
which relate to the UNOVA Group shall be
allocated to UNOVA for all periods. The
Filed UNOVA Group Separate Tax Liability
for the 1997 Stub Period shall be
determined pursuant to the following
procedures:
(1) On or before June 30, 1998, UNOVA shall
deliver to Western Atlas all
information (including without limitation,
Federal Form 1120, prepared on a
separate basis in accordance with past
practice, together with schedules,
statements and supporting documentation) as
Western Atlas may reasonably request
from time to time, with respect to each
member of the UNOVA Group that was a
member of the Western Atlas Consolidated
Group at any time in Calendar Year
1997, for the preparation of the federal
income Tax Return of the Western Atlas
Consolidated Group for Calendar Year 1997.
All information provided by UNOVA
pursuant to this paragraph shall correctly
reflect the facts regarding the
income, properties, operations and status
of each such member of the UNOVA Group
and shall be prepared applying elections
and methods of accounting that are
consistent with those made or used by such
member in prior taxable periods or
such other elections and methods as may be
reasonably agreed upon by the
parties.
(2) (A) Western Atlas shall make any
adjustments to the information so submitted
that it deems appropriate (individually, a
"Western Atlas Adjustment") and shall
prepare and file the consolidated federal
income Tax Return for the Western
Atlas Consolidated Group for Calendar Year
1997. Western Atlas shall determine,
in good faith, the UNOVA Group Separate Tax
Liability for 1997 Stub Year,
including amounts due or refunds receivable
with respect to IRS Form 8697.
Western Atlas
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shall notify UNOVA in writing of the amount
of such liability no later than
October 15, 1998. Such notification shall
include an explanation of the basis
for any Western Atlas Adjustments and a
copy of the calculations of the UNOVA
Group Separate Tax Liability.
(B) On or before November 15, 1998, UNOVA
shall provide Western Atlas with
written notice (the "UNOVA Notice") of all
Western Atlas Adjustments with which
UNOVA disagrees, together with the grounds
for such disagreement and any
supporting documentation.
If and to the extent that any Western Atlas
Adjustments remain in dispute,
Western Atlas shall provide to any branch
of a nationally recognized accounting
firm not then engaged by either party as
its primary auditor (hereinafter,
"Accounting Firm") all portions of the
UNOVA Notice pertaining to the disputed
Western Atlas Adjustments, together with a
statement of Western Atlas's position
with respect to each such adjustment and
any supporting documentation.
Accounting Firm's fees and expenses shall
be borne equally by Western Atlas and
UNOVA. Western Atlas shall provide such
information to Accounting Firm no later
than December 15, 1998. Accounting Firm
shall resolve all disputed Western Atlas
Adjustments and shall notify the parties of
such resolution, which shall be
binding on the parties hereto. Such
notification shall be given on or before
January 15, 1999 (the "Notification Date").
Any communication by either party
with Accounting Firm prior to the
applicable Notification Date shall be in
writing, with a copy simultaneously
furnished to the other party. If Accounting
Firm cannot resolve a disputed Western
Atlas Adjustment by the applicable
Notification Date, Western Atlas shall use
its sole discretion in reflecting
such disputed Western Atlas Adjustment on
its federal income Tax Return.
Accounting Firm shall be directed to
proceed to a resolution of such disputed
Western Atlas Adjustment as soon as
practicable, and, if such resolution differs
from the manner in which the disputed
Western Atlas Adjustment was reflected on
Western Atlas's federal income Tax Return,
Western Atlas shall file an amended
return reflecting such difference within
two months of such resolution. Western
Atlas shall make the appropriate
adjustments to the amount of the Filed UNOVA
Group Separate Tax Liability for the 1997
Stub Period, and shall promptly pay
UNOVA any balance otherwise due UNOVA
within three months of such resolution.
(c) Either party may extend any date
referenced in this Section 3.1 with the
consent of the other party, and such
consent shall not be unreasonably withheld
and shall be deemed to be given unless the
other party objects to such extension
in writing within a reasonable time after
the request therefor.
(d) For all known tax adjustments,
including credits, for the UNOVA Group for
which an amended federal return has not
been filed as of the Distribution Date,
UNOVA shall notify Western Atlas within 90
days of the Distribution Date of
these known adjustments and resulting
tax
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liabilities or refunds. The resulting tax
liabilities or refunds shall be an
amount by which the actual Taxes paid or
payable Western Atlas shall increase or
decrease. Within 30 days of such
notification, Western Atlas shall pay to UNOVA,
or UNOVA shall pay to Western Atlas, as
appropriate, such liability or refund as
the case may be.
(e) (A) Western Atlas shall make any
revisions to the known adjustments so
submitted that it deems appropriate
(individually, a "Western Atlas Revision")
and shall determine, in good faith, a
resulting tax liability of the known
adjustments including any Western Atlas
Revisions.
Western Atlas shall notify UNOVA of the
amount of such liability including an
explanation for any Western Atlas Revision
no later than 180 days from the
Distribution Date.
(B) Within 30 days of such notice from
Western Atlas, UNOVA shall provide
Western Atlas with a response of all
Western Atlas Revisions with which UNOVA
disagrees, together with an
explanation.
If and to the extent that any Western Atlas
Revisions remain in dispute, Western
Atlas and UNOVA shall jointly meet with
Accounting Firm. The parties shall
discuss all explanations, notices and
calculations provided under this
Subsection. Accounting Firm's fees and
expenses shall be borne equally by
Western Atlas and UNOVA. Accounting Firm
shall resolve all disputed Western
Atlas Revisions and shall notify the
parties of such resolution, which shall be
binding on the parties hereto. Such
notification shall be given within 30 days
of such meeting. Any communication with the
Accounting Firm will include Western
Atlas and UNOVA. If Accounting Firm cannot
resolve a disputed Western Atlas
Revision within the applicable period, an
extension of time may be granted upon
agreement of all parties. Western Atlas
shall make the appropriate adjustments
to the resulting tax liability, and Western
Atlas or UNOVA, as the case may be,
shall promptly pay any balance otherwise
due UNOVA or Western Atlas, as
appropriate, within 30 days of such
resolution.
Section 3.2. UNFILED JOINT RETURNS FOR
PRE-DISTRIBUTION PERIODS. (a) On or about
November 15, 1997, Western Atlas shall pay
to or receive from, as appropriate,
the UNOVA Group a sum equal to the
difference between (i) the UNOVA Group
Separate Joint Tax Liability for Calendar
Year 1996, and (ii) an amount equal to
all payments previously made by the UNOVA
Group or any member thereof. On or
about April 30, 1998, UNOVA shall pay to
Western Atlas, or Western Atlas shall
pay to UNOVA, as appropriate, a sum equal
to the difference (if any) between (i)
Western Atlas's estimate of the UNOVA Group
Separate Joint Tax Liability for the
1997 Stub Period, computed using 1996
apportionment factors and the taxable
income numbers supplied in Section 3.1(a),
and (ii) an amount equal to all
payments previously made by the UNOVA Group
or any member thereof. Not later
than one business day before April 15,
1998, Western Atlas shall deliver to
UNOVA a schedule showing its estimate of
the UNOVA Group Separate Joint Tax
Liability for the 1997
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Stub Period and the amount payable by UNOVA
to Western Atlas, or by Western
Atlas to UNOVA, as the case may be,
pursuant to this Section 3.2(a).
(b) UNOVA shall pay to Western Atlas, or
Western Atlas shall pay to UNOVA, as
appropriate, an amount reflecting the
difference (if any) between (i) the Filed
UNOVA Group Separate Joint Tax Liability
for the 1997 Stub Period and (ii) an
amount equal to all tax payments made by
the UNOVA Group with respect to such
period. Such payment shall be made on or
before December 15, 1998. Amounts due
or refunds receivable from any state or
other taxing jurisdiction with regard to
the interest computations under the
look-back method for completed long-term
contracts which relate to the UNOVA Group
shall be allocated to UNOVA for all
periods. The Filed UNOVA Group Separate
Joint Tax Liability for the 1997 Stub
Period shall be determined pursuant to the
following procedures:
(1) On or before July 31, 1998, UNOVA shall
deliver to Western Atlas all
information (including without limitation,
schedules, statements and supporting
documentation) as Western Atlas may
reasonably request from time to time, with
respect to each member of the UNOVA Group
that Western Atlas, in its sole
discretion, deems includible in the filing
of a Joint Return for Calendar Year
1997. All information provided by UNOVA
pursuant to this paragraph shall
correctly reflect the facts regarding the
income, properties, operations and
status of each such member of the UNOVA
Group and shall be prepared applying
elections and methods of accounting that
are consistent with those made or used
by such member in prior taxable periods or
such other elections and methods of
accounting as may be reasonably agreed upon
by the parties.
(2) (A) Western Atlas shall adjust the
information so submitted in good faith
and shall prepare and file all Joint
Returns for Calendar Year 1997. Western
Atlas shall determine, in good faith, the
UNOVA Group Separate Joint Tax
Liability of the UNOVA Group for each state
in which UNOVA is included in a
Joint Return for Calendar Year 1997,
reduced by the tax benefit of any loss or
credit that is limited at the UNOVA level
but utilized in the Joint Return and
increased by the tax benefit of any loss or
credit that is limited at the
Western Atlas Consolidated Group level but
utilized at the UNOVA level (the
"UNOVA Group Separate Joint Tax
Liability").
Western Atlas shall notify UNOVA in writing
of the amount of such liability no
later than November 30, 1998. Such
notification shall include an explanation of
the basis for any Western Atlas Adjustments
and a copy of the calculations of
the UNOVA Group Separate Joint Tax
Liability.
(B) Any adjustments made by Western Atlas
under Section 3.2(b)(2)(A) shall be
revised in the manner set forth in Section
3.1(b)(2)(B) in
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accordance with the procedures set forth
therein and moving the dates specified
therein one month forward or substituting
for the dates specified therein such
other dates as may be mutually agreed upon
by the parties.
(c) For all known tax adjustments,
including credits, for the UNOVA Group for
which an amended Joint Return has not been
filed as of the Distribution Date,
UNOVA shall notify Western Atlas within 120
days of the Distribution Date of
those known adjustments and resulting tax
liabilities or refunds. The resulting
tax liabilities or refunds shall be an
amount by which actual Taxes paid or
payable by Western Atlas shall increase or
decrease or, if both parties agree,
an amount calculated using an agreed-upon
effective state tax rate. Within 30
days after such notification, Western Atlas
shall pay to UNOVA, or UNOVA shall
pay to Western Atlas, as appropriate, such
liability or refund, as the case may
be. The known tax adjustments so submitted
shall be revised in the manner
described in Section 3.1(e) in accordance
with the procedures set forth therein.
(d) Either party may extend any date
referenced in this Section 3.2 with the
consent of the other party, and such
consent shall not be unreasonably withheld
and shall be deemed to be given unless the
other party objects in writing within
a reasonable time after the request
therefor.
Section 3.3. CHANGE IN FEDERAL RETURNS AND
JOINT RETURNS. (a) The parties
acknowledge that there has not yet been a
Final Determination of the federal
income tax liability of the Western Atlas
Group for any taxable year after the
fiscal year ended August 1, 1982 and that
certain members of the UNOVA Group
were included in the Western Atlas
Consolidated Group from March 18, 1994
through the Distribution Date. Except as
otherwise provided in this Agreement,
Western Atlas and each member of the
Western Atlas Group shall jointly and
severally indemnify UNOVA and each member
of the UNOVA Group against and hold
them harmless from federal income taxes and
all Taxes with respect to Joint
Returns for all periods beginning before
the Distribution Date and shall be
entitled to receive and retain all refunds
of federal income taxes and Taxes
with respect to Joint Returns with respect
to periods beginning before the
Distribution Date.
(b) Except as otherwise provided in this
Agreement, if as a result of any audit,
amendment or other change in a federal
income tax return or a Joint Return as
filed by Western Atlas or UNOVA with
respect to any period, the Final
Determination of an adjustment to any Tax
Item generates a Tax Detriment to
Western Atlas or any Western Atlas Business
for any period and a corresponding
Tax Benefit for UNOVA or any of the UNOVA
Businesses for any period (a
"Reimbursable Adjustment"), then Western
Atlas shall notify UNOVA of such
Reimbursable Adjustment.
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Page 15
(c) If UNOVA receives a notice of a
Reimbursable Adjustment, UNOVA shall use
reasonable efforts to have the Tax Benefit
to UNOVA flow through to Western
Atlas.
(d) If UNOVA is unable to have a Tax
Benefit flow through to Western Atlas as
described in Section
